TIDMZEG
RNS Number : 6460Z
Zegona Communications PLC
24 May 2021
NOT FOR DISTRIBUTION, PUBLICATION OR RELEASE, IN WHOLE OR IN
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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
ZEGONA COMMUNICATIONS PLC ( " Zegona " )
LEI: 213800ASI1VZL2ED4S65
24 MaY 2021
ZEGONA ANNOUNCES RETURN OF GBP335 MILLION OF CAPITAL TO ITS
SHAREHOLDERS, EQUIVALENT TO GBP1.53 PER SHARE, AND MANAGEMENT
INCREASES ITS INVESTMENT IN ZEGONA
Zegona Communications plc ("Zegona") today announces its
intention to return GBP335 million to its shareholders in cash via
a capital return following receipt of the proceeds from the
acquisition of Euskaltel, S.A. ("Euskaltel") by MásMóvil Ibercom,
S.A.U. ("MasMovil").
MasMovil's Offer will deliver substantial cash proceeds to
Zegona
-- On 28 March 2021, MasMovil launched a tender offer to acquire
100% of Euskaltel at EUR11.17 per share in cash (the "Offer"),
valuing Euskaltel's equity at EUR2.0 billion, which represents an
enterprise value of EUR3.5 billion
-- The Offer equates to a Zegona Underlying Asset Value of
GBP1.70 per share(1) and represents a return on Zegona's Net
Invested Capital of 87%(2)
-- Assuming the Offer closes as expected, Zegona will receive
c.EUR428 million in cash for its 21.44% stake(3) . These proceeds
will convert into c.GBP370 million under the contingent FX forward
transaction that Zegona entered into on 8 April 2021
-- Together with Zegona's other net cash(4) , the outstanding
tax contingent consideration(5) and anticipated ongoing operating
costs, Zegona's total asset value is expected to be c.GBP372
million at the closing of MasMovil's Offer
Zegona has committed to returning GBP335 million to its
shareholders
-- Zegona has undertaken to seek the necessary approvals to
return GBP335 million in cash to its shareholders following the
closing of MasMovil's Offer. This represents a value of GBP1.53 per
Zegona share(6)
-- Zegona is committed to returning as much of the proceeds from
the sale of Euskaltel as soon as reasonably possible, while leaving
the business in a position to source its next investment
opportunity. Following the capital return and payment of Zegona
management's long term incentive programme ("LTIP"), Zegona expects
to have a net cash balance of c.GBP11 million, equivalent to
GBP0.05 per Zegona share. Together with the capital return of
GBP1.53 per share, the total value for shareholders is expected to
be GBP1.58 per Zegona share(7)
-- The capital return will be implemented using the mechanism
which the directors believe offers the best combination of
timeliness, cost effectiveness and tax efficiency. Zegona is
committed to completing the capital return as soon as is reasonably
practicable(8)
-- Zegona will hold a shareholder vote within 2 years of the
closing of the Euskaltel sale on returning remaining funds to
shareholders if it has not made its next investment within that
timeframe(9)
Zegona management has agreed to increase its investment in
Zegona by GBP4 million
-- Zegona management's LTIP will be triggered by the sale of
Zegona's holding in Euskaltel and the return of the net proceeds of
that sale to shareholders(10)
-- The Zegona senior team (the "Managers") has committed to
re-invest a portion of the LTIP, equating to GBP4 million in
aggregate, back into Zegona and has entered into binding
subscription agreements(11) for new shares. The subscription price
will be the adjusted net asset value per share(12) of Zegona
immediately prior to completion of the subscription, which is
currently expected to be c.GBP0.05
-- Zegona's two executive directors will waive any bonus payment
for 2021 and will not receive any bonus for the period when Zegona
does not own a material underlying asset
-- Following the re-investments, Zegona expects to have a net
cash balance of c.GBP15 million(13) , with management owning in
aggregate c.28% of the business(14)
Marwyn supports proposals
-- Marwyn Investment Management LLP ("Marwyn")(15) supports the
Company's plans and timing for the distribution of proceeds to
shareholders. These plans also have the support of other
significant shareholders with whom Zegona has consulted
-- Marwyn has confirmed that its concerns have been addressed
and, as a result, has withdrawn its request for a General Meeting,
which was announced on 4 May 2021
-- Marwyn strongly supports management's intention to re-invest
in the ongoing Zegona business and has agreed to vote in favour of
all resolutions at the forthcoming AGM
Once Zegona exits Spain, it will continue to execute its
Buy-Fix-Sell strategy across the European TMT sector. We will focus
on businesses that require active change to realise full value,
creating long-term returns through fundamental business
improvements.
We see a very healthy environment for investments across the
broader European TMT industry. The market is large and fragmented,
with well over 100 operators, of which over half fit our target
investment size of an enterprise value range of GBP2-5 billion. We
have seen increased deal activity and greater availability of
assets driven by significant consolidation and convergence. We
believe this will continue over the coming years, creating fertile
ground to both buy and sell assets and once again create
shareholder value through fundamental business improvement.
Eamonn O'Hare, Zegona's Chairman and CEO commented:
"When we originally invested in Spain in 2015, we identified the
opportunity for substantial value creation, with further upside
potential from industry consolidation. The offer by MasMovil to
acquire Euskaltel underscored the success of our strategy,
delivering significant value for Zegona shareholders. Zegona has a
well-established policy of raising capital when we need it and
returning capital quickly and efficiently when we monetise our
investments. Today's announcement represents the return of the
value from Euskaltel to shareholders and reflects Zegona
management's confidence in the opportunity to deliver an attractive
new investment in the European TMT sector."
Enquiries
Tavistock (Public Relations adviser - UK)
Tel: +44 (0)20 7920 3150
Jos Simson - jos.simson@tavistock.co.uk
About Zegona
Zegona was established in 2015 with the objective of investing
in businesses in the European Telecommunications, Media and
Technology sector and improving their performance to deliver
attractive shareholder returns. Zegona is led by former Virgin
Media executives Eamonn O'Hare and Robert Samuelson.
Zegona's first transaction was the EUR640 million acquisition of
Telecable in August 2015, the leading quad-play telecommunications
operator in Asturias, Spain. In 2017, Zegona sold Telecable for a
total consideration of up to EUR701 million(16) to the northern
Spanish telecoms group Euskaltel. As part of the transaction,
Zegona returned GBP140 million of capital to its shareholders and
became a 15% shareholder in Euskaltel.
In 2019, Zegona became the largest shareholder in Euskaltel and,
through the introduction of José Miguel García as CEO, implemented
a plan to drive significant change in the business. The plan
involved efficiency gains of at least EUR40 million per annum,
returning Euskaltel's core business to growth and expanding
nationally through launching the Virgin telco brand.
In March 2021, MasMovil launched a tender offer to acquire
Euskaltel at EUR11.17 per share, valuing Euskaltel's equity at
EUR2.0 billion, which equates to an enterprise value of EUR3.5
billion. The offer was supported by Zegona and Euskaltel's other
major shareholders and represents a return on Zegona's Net Invested
Capital of 87%. The acquisition underscores the success of our
strategy, delivering significant value creation for Zegona
shareholders.
About Euskaltel
Euskaltel is the leading converged telecommunications provider
in northern Spain and has recently expanded to offer services
nationally. It provides high speed broadband, data-rich mobile,
advanced TV and fixed communications services to residential and
business customers under the Euskaltel, R Cable, Telecable and
Virgin telco brands. Euskaltel is a public company traded on the
stock markets of Bilbao, Madrid, Barcelona and Valencia.
Notes:
1. Zegona's Underlying Asset Value per share as set out in
Zegona's announcement dated 29 March 2021
2. Return on Zegona's Net Invested Capital as set out in
Zegona's announcement dated 29 March 2021. As at 26 March 2021,
Zegona's Net Invested Capital was GBP198.5 million, equivalent to
GBP0.91 per Zegona share. Zegona's Net Invested Capital represents
the net amount of all shareholder subscriptions less all returns to
shareholders, including dividends, capital returns and share
buy-backs since Zegona's initial quotation on the AIM Market in
March 2015
3. c.EUR428 million proceeds based on tender offer price of
EUR11.17 per share for the 38.3 million Euskaltel shares held by
Zegona
4. On the sale of its stake in Euskaltel, Zegona will need to
repay its current GBP10 million loan facility with Barclays as this
is secured on 32.2 million of its Euskaltel shares
5. As part of its acquisition of Telecable in 2017, Euskaltel
agreed to pay Zegona a contingent consideration equal to 35% of the
value of the Telecable's tax assets once these were confirmed as
being available for use by Euskaltel. Zegona expects Euskaltel to
pay this contingent consideration no later than 15 days after the
settlement of the Offer at the value of EUR8.654 million, which is
the liability to Zegona recorded in Euskaltel's financial
statements for the year ended 31 December 2020
6. The capital return is dependent on the closing of MasMovil's
Offer, which is subject to regulatory clearances and to acceptance
of the Offer by a number of shares representing at least 75% plus
one share of the total outstanding share capital of Euskaltel, and,
amongst other requirements, on the approval of Zegona shareholders
of the actions required for the capital return. The Spanish tender
offer process is expected to take around 6 months from announcement
to settlement. However, this timeline can be impacted by any delays
in regulatory reviews and approvals and if there are competing
offers
7. The total value for shareholders is calculated based on a
capital return of GBP335 million plus Zegona's expected net cash
balance of c.GBP11 million post the return of capital and payment
of the LTIP. This value is a calculation and not a forecast value
for Zegona shareholders. See the heading "Calculation of total
value" below
8. The capital return will be conditional upon the closing of
MasMovil's Offer and subject to all applicable laws and
regulations, including the receipt of the required shareholder and
court approvals and such other third-party approvals as reasonably
required, which the Company has undertaken to use all reasonable
endeavours promptly to procure
9. If holders of a majority of Zegona's shares (excluding shares
held by Zegona management) vote in favour, Zegona will promptly
cease all operations and return its remaining funds to
shareholders. Shareholders will be offered further votes on ceasing
Zegona's operations and returning remaining funds at each
subsequent AGM if Zegona has still not made its next investment by
that time
10. Net proceeds of the sale are after satisfying Zegona
creditors. The value of the LTIP owed to the management team is
expected to be c.GBP25.7 million, as per the calculation set out in
the Zegona Limited articles of association in the event of a
"Takeover", which includes the scenario where all or substantially
all of the business or assets of Zegona Limited have been sold and
the net proceeds of the sale, after satisfying Zegona's creditors,
are returned to shareholders. The value of the LTIP will be
confirmed by the Company's auditors or an independent global
accounting firm
11. The Managers have entered into binding subscription
agreements, pursuant to which Eamonn O'Hare has conditionally
subscribed GBP2,366,800, Robert Samuelson has conditionally
subscribed GBP1,183,400, Howard Kalika has conditionally subscribed
GBP224,900 and Menno Kremer has conditionally subscribed
GBP224,900, in each case for new ordinary shares in Zegona (each a
"Re-investment"). The subscription agreements are subject to the
closing of the Offer, the LTIP being paid, shareholder approval for
the new Zegona ordinary shares to be issued at a general meeting to
be convened for immediately prior to the AGM on 30 June 2021 and to
admission of them to trading on the London Stock Exchange. No
prospectus is expected to be required to be issued. To the extent
that the aggregate number of shares to be subscribed under the
subscription agreements exceeds 28.1% of the issued share capital
of the Company at the time, the subscriptions shall be scaled back
pro rata. As key members of Zegona's management team (and in the
case of Eamonn O'Hare and Robert Samuelson, directors of Zegona),
each of the Managers is a related party, and each Re-investment is
a material related party transaction, in each case for the purposes
of and as defined under DTR 7.3
12. The adjusted net asset value will be calculated post the
capital return of GBP335 million to shareholders, with no
provisions being made for any potential value being received from
the non-current tax receivable described below, no provisions for
the termination costs of any contracts or other future potential
liabilities, and on the basis that the terms set out in this
announcement have been adhered to. The independent directors,
comprising Ashley Martin, Kjersti Wiklund, Richard Williams and
Suzi Williams, consider the terms of the Re-investments to be fair
and reasonable and have approved each Re-investment. The adjusted
net asset value per share will be confirmed by the Company's
auditors or an independent global accounting firm. The non-current
tax receivable of GBP4.1 million is dependent on a successful
appeal by Zegona in respect of the tax paid by Zegona to HMRC on 4
March 2021 relating to the UK's Controlled Foreign Company
legislation and the European Commission's decision in 2019 that the
associated Group Financing Exemption was an aid scheme and amounted
to illegal state aid (as disclosed in Zegona's accounts for the
year ended 31 December 2020)
13. Post the repayment of Zegona's GBP10 million loan facility,
the proposed return of GBP335 million of capital to shareholders
and payment of the LTIP, and assuming the tax contingent
consideration is received, Zegona expects to have approximately
GBP11 million of net cash on its balance sheet. Including the
Re-investments, the net cash balance is expected to be c.GBP15
million
14. Assuming a net asset value of c.GBP11 million, management
will have a c.28% ownership stake in Zegona post the Re-investments
(including management's existing 1.4% ownership). Managers are
committed to hold the shares in Zegona issued to them under the
Re-investment for a minimum period of 6 months from the date of
payment for the shares
15. Funds managed by Marwyn currently hold a 19.2% stake in
Zegona. Marwyn has undertaken to vote all shares it holds in favour
of all resolutions at the Zegona AGM which is due to be held on 30
June 2021
16. Total value of up to EUR701 million comprised of an
Enterprise Value of EUR686 million and a contingent deferred
payment of up to EUR15 million related to tax assets acquired
IMPORTANT NOTICES
Zegona is listed on the standard listing segment of the Official
List of the Financial Conduct Authority and the Main Market for
listed securities of the London Stock Exchange. This announcement
has been prepared in accordance with English law, the Listing Rules
and the Disclosure Guidance and Transparency Rules and information
disclosed may not be the same as that which would have been
prepared in accordance with the laws of jurisdictions outside
England. The distribution of this announcement in jurisdictions
outside the United Kingdom may be restricted by law and therefore
persons into whose possession this announcement comes should inform
themselves about and observe such restrictions. Any failure to
comply with the restrictions may constitute a violation of the
securities law of any such jurisdiction.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "expects", "believes",
"estimates", "envisages", "plans", "anticipates", "targets",
"aims", "continues", "expects", "intends", "hopes", "may", "will",
"would", "could" or "should" or, in each case, their negative or
other variations or comparable terminology. These forward-looking
statements include matters that are not facts. By their nature,
forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances. A number of factors
could cause actual results and developments to differ materially
from those expressed or implied by the forward-looking statements.
Forward-looking statements contained in this announcement based on
past trends or activities should not be taken as a representation
that such trends or activities will continue in the future. Subject
to any requirement under the Listing Rules, Prospectus Rules, the
Disclosure Guidance and Transparency Rules or other applicable
legislation or regulation, Zegona does not undertake any obligation
to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Investors
should not place undue reliance on forward-looking statements,
which speak only as of the date of this announcement.
Underlying Asset Value per share
The Underlying Asset Value per share of Zegona is a calculation,
not a forecast value for Zegona's shareholders. There can be no
assurance that such a value will be achieved and investors should
place no reliance on such value when making an investment decision.
Nothing in this announcement is intended, or is to be construed, as
a forecast of the expected value to Zegona's shareholders.
Calculation of total value
The total value referred to in this announcement is a
calculation, not a forecast value for Zegona's shareholders. There
can be no assurance that such a value will be achieved and
investors should place no reliance on such value when making an
investment decision. Nothing in this announcement is intended, or
is to be construed, as a forecast of the expected value to Zegona's
shareholders.
Eamonn O'Hare
Executive Chairman
Zegona Communications plc
8 Sackville St, Mayfair
London W1S 3DG
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END
MSCFLFVRESISFIL
(END) Dow Jones Newswires
May 24, 2021 12:36 ET (16:36 GMT)
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